Insurance brokers must find out all the facts that could affect your policy
October 30 2011 at 12:05pm
By Laura du Preez
Your insurance broker has a duty to find out all material information that may affect your cover and to explain how failing to disclose such information could affect you. This includes finding out whether your home or business premises are thatched, even if you are insuring only your household contents or the stock and assets of your business.
An insurance broker who failed to do as much for a man who bought a supermarket in Marloth Park in Mpumalanga was ordered by the financial advice ombud to compensate the supermarket owner after he lost all his stock in a fire.
In the ruling, Noluntu Bam, the Ombud for Financial Services Providers, says Kevin Vermeulen, trading as Coverall Insurance Brokers, contravened the code of conduct under the Financial Advisory and Intermediary Services (FAIS) Act and ordered him to pay R800 000 to Afrikeet Wildlife Promotions CC.
Afrikeet’s representative, Ian Styer, lost about R1.5 million when a fire destroyed the thatched premises from which he was trading.
Styer complained to the ombud and agreed to limit his claim for compensation to R800 000, the maximum amount that the ombud can order a financial services provider (FSP) to pay.
When Styer bought the supermarket business in a shopping centre in July 2008, he contacted Vermeulen, his broker of 20 years, to insure the business’s assets and stock, estimated to be worth about R1 million.
Vermeulen suggested that Styer email him a list of the assets and the stock to be insured. Insurance cover was then taken out with Zurich.
In December 2008, Styer added a bottlestore to the same premises and asked Vermeulen to insure the new assets, which included cool rooms, freezers and stock.
In March 2009, a fire in neighbouring premises spread to Styer’s supermarket and destroyed the entire shopping centre.
Zurich informed Styer that his policy document did not state that the building had a thatched roof, and it rejected his claim on the grounds that this was a material fact that was not disclosed.
The insurance premiums for buildings with thatched roofs, or for the contents within thatched premises, are generally loaded, because these buildings have a greater risk of being destroyed or damaged by fire than buildings with other roofing material.
Styer questioned how it could be said that he had failed to disclose that the building had a thatched roof when there was no reference to this in the policy document.
He also told the ombud he was never asked about the structure or whether it was thatched and relied on his broker, as a professional, to advise him.
Bam says that Vermeulen, as a broker of more than 15 years, should have known that one of the material issues that could affect insurance cover is a thatched roof, and that this therefore needed to have been disclosed.
The FAIS Act’s code of conduct stipulates that when FSPs render advice or a financial service to you, they must give you concise details of any special terms or conditions, exclusions, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided.
Bam says that Vermeulen “ought to have pertinently asked [Styer] whether the premises have [a] thatched roof and further disclosed to [him] that cover may be denied if the structure has a thatched roof where such detail is not disclosed to the insurers”.
The ombud says “the responsibility to elicit this information rested solely with [Vermeulen]”.
The complaint was initially referred to Brian Martin, the Ombudsman for Short-term Insurance. In his response to the ombudsman, Vermeulen said he was of the view that Styer had not deliberately withheld the fact that the premises were thatched, but this was an oversight as a result of the fact that Styer was not insuring the building but only the contents.
Vermeulen told the short-term insurance ombudsman that Styer was aware that thatched premises attracted higher premiums, because a house he bought in 2006 had been thatched and he had queried the high premium.
Vermeulen had explained to him then that the cover for both his house and contents would cost more than that for an ordinary house because the house was thatched.
Bam says this did not absolve Vermeulen from carrying out his duties and cannot be construed to mean that Styer knew when he insured his business stock and assets that he had to inform Vermeulen that the premises of the supermarket were thatched.
Bam also found that Vermeulen had contravened the FAIS Act’s code, because there was no documentation of the financial service Vermeulen had given Styer. There was no proposal form, no quotation or any document of any sort recording the communication between Styer and Vermeulen.
Vermeulen told the ombud a proposal form was not required because the policy was a business policy.
Vermeulen supplied a quotation form, but it was undated and there was no proof it had been sent to Styer, Bam says. Styer denied he had received the quotation.
Bam says the facts before her office show that Vermeulen’s failure to render the financial service properly was the reason Styer did not enjoy indemnity under his insurance policy.
She ordered Vermeulen and/or Coverall to pay Styer R800 000 plus interest from the date of the order.
LIMITATIONS ON ADVICE MUST BE DISCLOSED
If a financial adviser or a broker is unable to conduct an analysis of your circumstances and give you advice, he or she must ensure that you understand that an analysis could not be performed and there may be limitations on the appropriateness of the advice provided, Noluntu Bam, the Ombud for Financial Services Providers, says.
In his response to the ombud regarding Ian Styer’s complaint about his repudiated insurance claim, Kevin Vermeulen said that he merely acted on Styer’s instruction to obtain insurance cover for his business assets, and he did not provide advice or a recommendation about the insurance cover required. Financial advisers refer to this as servicing a single need.
As a result, Vermeulen said, some of the provisions of the Financial Advisory and Intermediary Services Act that govern advice did not apply.
But Bam says that in such cases your adviser or broker needs to make you aware that you must take particular care to consider whether the advice is appropriate considering your objectives, financial situation and your needs.